Baird firm as credit rating is questioned

Senior writer

Played down the need for emergency budget measures ... state Treasurer Mike Baird. Photo: AFR

THE state Treasurer, Mike Baird, has dismissed the need for a mini-budget to shore up NSW's finances after a leading international ratings agency warned that its AAA credit rating was in jeopardy.

Standard and Poor's revised down the credit rating outlook yesterday for the state from "stable" to "negative", adding there was a one-in-three chance the AAA credit rating would be lost over the next two years. It said taxes should be raised or state assets sold to improve the state's financial position.

The O'Farrell government has passed legislation requiring NSW to retain a AAA rating and some financial market analysts said a mini-budget might be needed to keep this vow.

A Commonwealth Bank analyst, Adam Donaldson, said that, given the state legislation, some "interim budget measures" would be required.

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"This could be part of the midyear review due over the next month or so, or a 'mini-budget'.''

Mr Baird played down the need for emergency budget measures but said the government was ready to take action to defend its premium credit rating if required.

"There's no need for a mini-budget at this stage," he said.

"We are confident [of] the asset sale program we have under way which will meet the objective of providing infrastructure and paying down debt. We also see the revenue target that we have set as being on track. But the government reserves the right to act at any time to ensure we continue to maintain the triple-A rating."

Standard and Poor's rated the state's budgetary performance as ''moderate'' and warned the growing pressure to invest in infrastructure meant the state's "budgetary flexibility may become increasingly challenged".

The report said the state could regain its stable credit outlook by boosting revenue - through higher taxation - or by asset sales.

The O'Farrell government is privatising its Port Botany container terminal and state-owned electricity generators but has stopped short of selling the electricity distribution network.

The Standard and Poor's report was not all bad news. It said financial management in NSW had improved since the Coalition came to power last year, including tighter revenue and expenditure management and closer monitoring of government business performance.

Even so, the ratings agency said the "long-term issues of sustainable infrastructure investment will continue to challenge the government".

Mr Baird said he was pleased that Standard and Poor's had reaffirmed the state's AAA credit rating.

Standard & Poor's also downgraded its outlook on Western Australia's credit rating yesterday but Victoria's AAA credit rating was reaffirmed.